Bristol-Myers Falls as It Cites Drug-Trial Questions

By Drew Armstrong -
Jan 24, 2014

Bristol-Myers Squibb Co. (BMY) plunged the
most in 17 months after the drugmaker said it wasn’t ready to
move ahead with a study of a combination cancer treatment that
includes the company’s top prospect.

Bristol-Myers fell 5.6 percent to $50.94 at 4 p.m. New York
time, the biggest one-day drop since August 2012. Investors had
been intently watching whether the company would move forward
with a final stage trial in lung cancer of the experimental
medicine nivolumab and Yervoy, a drug already on the market.

“Based on our assessment of the preliminary data, we will
continue the cohorts of patients before beginning a
registrational study,” Francis Cuss, the New York-based
company’s head of research and development, said on a call with
investors. “We’ll certainly know a lot more about nivolumab a
year from now.”

The drug is being tested in lung, skin, kidney and other
cancers. It could be used alone or in combination with the
company’s first immune system-based cancer treatment, Yervoy.
Investors have been keen on the possibility that combining
nivolumab and Yervoy may be a potent therapy to fight cancer and
to boost sales.

The drugs’ potential has led Bristol-Myers’s shares to gain
42 percent in the 12 months, more than any competitor.

High Valuation

“We’ve got a hold rating on Bristol, because we’ve got a
valuation that can’t be supported without overly strong nivo and
Yervoy” sales, said Judson Clark, an analyst with Edward Jones
& Co. “At this point it looks like the estimates have almost
fully baked in success.”

Other analysts called today’s stock drop a buying
opportunity. The comments by Bristol-Myers’s R&D chief “spooked
the market,” said Leerink Partners analyst Seamus Fernandez,
yet don’t change the underlying promise for the drugs.
“Comments about how they move forward before beginning
registrational studies is far from a failed outcome,” he said
in a note to clients. “We’re buyers.”

Earlier, the company reported fourth-quarter earnings that
topped analysts’ estimates.

Profit excluding certain items was 51 cents a share,
beating by 8 cents the average of 15 analysts’ estimates,
according to data compiled by Bloomberg. Revenue increased to
$4.44 billion from $4.19 billion a year earlier, the drugmaker
said in a statement. That topped by $116 million the average
analyst projection.

Bristol-Myers is putting its biggest effort on cancer after
a strategic overhaul last year. The company is furthest along in
an industrywide shift to divest non-drug units, trim research
programs and focus on therapies where patients don’t have good
options such as rare diseases or the science is progressing
fastest.

Company Focus

“When you realize you are the furthest down the path of
these cancer drugs, it makes sense to make that your focus,”
Clark said in a telephone interview. “They’re taking cues from
what shareholders have told them they want, which is ’Let me
diversify my own pipeline the way I want, and you focus on your
area.’”

The drugmaker said in November it was ending research in
diabetes, hepatitis C and neuroscience to put more resources
into a new generation of therapies that use the body’s own
immune system to kill cancer cells. Last month, the company
agreed to sell its diabetes business stake to venture partner
AstraZeneca Plc for as much as $4.3 billion.

Net income attributable to Bristol-Myers declined to $726
million, or 44 cents a share, from $925 million, or 56 cents, a
year earlier when the company recorded a tax benefit.

R&D Costs

Research and development costs fell 12 percent to $957
million from a year earlier, largely due to the end of clinical
trials and projects. Lower costs from the research overhaul
announced in November won’t affect results until later this
year, the company said. The same is true of increased spending
the company anticipates to help introduce new cancer drugs.

Bristol-Myers reported Yervoy sales rose 23 percent to $260
million in the fourth quarter, about $3 million below analysts’
estimates.

“This is understandable -- and deserved -- because the
company has delivered various pipeline successes over the last
several years and sits at the forefront of the exciting ‘immuno-oncology’ area,” Timothy Anderson, an analyst with Sanford C.
Bernstein & Co., said in a note to clients.

Revenue from Bristol-Myers’s top drugs also grew in the
fourth quarter, fueled by an 11 percent increase in overseas
sales, the company reported. Sustiva, a treatment for HIV, rose
11 percent to $427 million. Orencia, a medicine for rheumatoid
arthritis, generated an increase of 22 percent to $397 million.

Drug Sales

Sales of Abilify, an anti-psychotic drug that is the
company’s biggest seller, fell 22 percent to $635 million,
because of a new agreement with partner Otsuka Holdings Co. that
gives Bristol-Myers less revenue from the medicine.

Eliquis, a new blood thinner sold with New York-based
Pfizer Inc. (PFE), generated $71 million. The pill is one of three new
drugs that may replace warfarin, a decades-old, less-convenient
treatment to prevent blood clots and strokes. Projected by
analysts to be a blockbuster, initial sales have been slow and
the companies have overhauled promotional efforts. Bristol-Myers
has said it has no plans to divest its stake in the drug or sell
it to Pfizer.

The two companies last year started a direct-to-consumer ad
campaign for the drug, and Bristol-Myers reported total spending
on advertising and product promotion rose 20 percent to $254
million in the fourth quarter.